Citing Need for Reform, Business Drives Valley Secession

Although a broad variety of political issues and grievances in the San Fernando Valley and Hollywood are pushing a split from Los Angeles, business issues are driving the secession movements.

And arguments and campaigns over business issues--taxes,

fees, bureaucracy, unions, pensions--will make this a long, hot summer and fall.

The stakes are high. The consequences for business and Southern California’s economy if the San Fernando Valley were to break away are unknown. But they are unlikely to be minor, since the Valley boasts about 50% of all the manufacturing in Los Angeles County, 15% of the county’s work force, plus higher average and median incomes than the rest of the region.

At a minimum, if both the Valley and Hollywood secede, Los Angeles’ population would be reduced by 40%. The city’s political influence and that of its mayor’s office would be diminished, of course. That could reduce access to federal programs for the region.

Inevitably, political diminution of Los Angeles would lead to greater power and influence for the governor and Legislature and the county supervisors, who, in addition to their other duties, function as administrative agents of state government.

The effects of such potential political shifts are yet to be determined.

Business issues are easier to grasp, although it should be said that the business problems seem hardly serious enough to cause a city to break up. To be sure, businesses and residents in the Valley have grounds for complaint about neglect from Los Angeles City Hall. And arguments about those complaints will decide the election in November.

But right now, the very threat of secession is spurring action to solve some problems. Business and Los Angeles government are collaborating to clean up a long-standing mess on taxes.

Business taxes are a main bone of contention citywide. Los Angeles imposes higher taxes on business than any other community in Southern California. That fact is particularly grating to companies in the San Fernando Valley because neighboring Burbank imposes some of the lowest taxes and fees on business in the region, according to the annual survey of business costs published by Kosmont Cos., a Los Angeles consulting firm.

Some Valley businesspeople believe that taxes could be lowered after secession, but that is unlikely. In fact, taxes in a Valley city would almost surely be higher, at least initially, says consultant Larry Kosmont. For legal reasons, a Valley city could not impose a document transfer tax “and so will start out $31 million in the hole,” Kosmont points out, and might have to resort to other taxes to make up the differences. (Document transfer taxes, imposed on sales of property, affect homeowners as well as business--a demonstration of how closely business and general public issues are linked in the secession dispute.)

One thing is certain: Nothing will change on taxes or other matters during a nine-month transition period if secession wins in November.

The form of Los Angeles business taxation also is an issue. The city imposes a gross receipts tax, meaning that retail concerns such as car dealers pay taxes on the sales price of vehicles they sell in the city, not on the profit from the sale or on their dealership’s revenue after deducting staff and equipment costs. Similarly, lawyers, accountants and other service providers pay taxes on their billing totals, before deducting costs.

Tax Problems Appear

to Be Solvable

But businesses that sell outside the city, such as car dealers in Burbank or lawyers in Beverly Hills, pay lower taxes.

That’s one reason Bert Boeckmann, owner of Galpin Motors in North Hills, and David Fleming, a prominent attorney in Studio City, are leading supporters of the Valley Vote movement.

Yet even on taxes, details behind the issues offer a different perspective. Valley businessmen Marvin Selter, a consultant and civic leader, and Sanford Paris, a developer of industrial property, serve on a business tax committee organized by the Los Angeles mayor’s office. The committee soon will propose alternatives to the gross receipts tax.

One alternative could be a per-employee tax similar to what Beverly Hills, Burbank and other cities use, Selter says. Also, reforms of state law, which take effect in January, could help Los Angeles reduce its taxes on business, says Jonathan Kevles, head of economic development in Mayor James Hahn’s office.

So the tax problem appears solvable short of municipal divorce--although as one expert points out, the solutions have been talked about for three years.

Beyond taxes, a major business gripe is about Los Angeles’ city bureaucracy, which delays permits and inspections and adds tremendously to business costs. Complaints are not confined to the Valley. Indeed, it is hard to overstate the anger and contempt that many small to medium-sized businesses express at city government.

Fleming, the Latham & Watkins lawyer who is a leader in the Valley secession movement, says a new Valley city would have “better services at lower costs” because it could start fresh, reducing staffing of city offices and negotiating a more reasonable deal with Los Angeles’ municipal unions.

Fleming focuses particularly on pensions, a city budget issue that touches business and all taxpayers. Los Angeles’ pension system offers city workers retirement after 30 years of service at 70% of highest pay plus health benefits for life. “No business can afford that anymore, and the city can’t either,” Fleming says. He would negotiate “a different pension deal for new hires,” he says.

But Fleming and Valley secession face union opposition. Miguel Contreras, head of the Southern California AFL-CIO, says he will work to bring 220,000 union members to the polls to vote against secession. “And only 15,000 of those are city workers,” Contreras adds.

“Secession would be bad. We should solve our problems as one house,” Contreras says. Unions would undoubtedly represent municipal employees in a new Valley city, but negotiating with two major city halls instead of one could divide and weaken union power.

The long campaign over secession is only beginning, and as yet most businesspeople remain uncertain and skeptical on the issue. “I don’t hear a unified outcry from the business community,” says Bruce Ackerman, president of the Economic Alliance of the San Fernando Valley, a private economic development organization of more than 125 companies.

Walter Mosher, president of Precision Dynamics, a large Pacoima firm that makes medical devices, is “totally” for secession. “The Valley has been a patsy for that downtown crowd that takes our money for every cockeyed scheme, like this NFL foot- ball.... “ Mosher says, referring derisively to a proposal for the city to offer reclaimed land for a stadium.

But other businesspeople take a wait-and-see attitude. Harvey Berg, head of ACI Billing Services, a Northridge firm that makes software that facilitates billing for long-distance telecommunications, says he has a long-running lawsuit against the city over how his business should be classified for tax purposes. Yet the delivery of city services for his 90-employee company, which has $40 million in annual sales, has been fair on the whole, he says.

Valley Businesses Worry About Incentives

Doing business in a smaller city such as Burbank, Glendale or Calabasas would be cheaper because they impose lower taxes and fees, Berg notes. But whether that would be true for a new Valley city remains to be seen, he adds.

Developer Paris, owner of Encino-based Paris Industrial Parks, says that though the city’s bureaucracy can be a pain in the neck, reform is clearly possible. Paris cites Andrew Adelman, who as head of building and safety has made simple and productive changes, such as assigning one inspector to a construction project instead of three or four.

Paris says a new city would give the Valley an “opportunity” to do a better job, but there’s no guarantee the opportunity would be ful-

filled.

Many businesspeople worry about the consequences for their companies if the Valley decouples. Ricon Corp., for example, is a manufacturer of wheelchair lifts that employs 450 workers in a factory on the site of the old General Motors plant in Panorama City.

Ricon got tax breaks and training grants from City Hall and discounts from the Department of Water & Power because it was the first tenant to build on the GM site.

But if the Valley becomes a new city, “will my company lose those incentives?” asks Ricon Chief Executive William Baldwin. “I’ve been unable to get a straight answer,” he says.

“That’s a good question,” says Kevles of Hahn’s office. “It’s just one part of the vast amount of uncertainty surrounding the secession issue.”

Kevles fears that the whole region will suffer a downturn in investment as companies and investors from around the country back away from the bewildering local scene.

However, economist Shirley Svorny of Cal State Northridge dismisses such concerns, noting that the county is made up of 88 cities now. One or two more won’t deter investors, she maintains.

Still, the possibility of secession, not to mention possible years of transition for cities to accommodate their new status, could very well discourage investors locally and nationally.

So the question arises why Los Angeles has to break up if the reform of the offending tax system is already underway and improvement in the city government’s responsiveness to business and local concerns is attainable. Reform rather than rupture would seem a better way.

With that in mind, the Valley’s Economic Alliance has been seriously studying other models of urban reform. London, for example, has transferred authority for education, social services, housing, some local transit and other services to its 32 local boroughs. The main functions of the Greater London Authority now are economic development, transportation and metropolitan police.

Boroughs Considered

Fall-Back Position

Baltimore is striving for decentralized regional administration that retains the central core city.

In Los Angeles today many experts--from City Councilwoman Wendy Gruel, who represents a Valley district, to state librarian and historian Kevin Starr--are calling for the city to form boroughs for local administration and control.

And they could be on to a solution, although not for the present, says Ackerman of the Valley’s Economic Alliance. “Boroughs have zero chance today, but they are the fall-back position if the secession vote fails--or even if it passes,” Ackerman says. Fleming says the proposed Valley city would have boroughs.

Clearly, Los Angeles, the city and county and its $350-billion annual economic output, face a critical choice in the November election. Many may hope that the city’s residents and business owners would try to solve problems together, but it remains to be seen whether a majority of voters share such hopes.

James Flanigan can be reached at jim.flanigan@latimes.com.